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Sunday, November 24, 2013

Cheff v. Mathes case brief

Cheff v. Mathes case brief summary
199 A.2d 548 (Del. 1964)

CASE SYNOPSIS

Defendant corporate directors appealed a
judgment from the trial court (Delaware) in favor of plaintiff
shareholders in a derivative suit. The trial court held that
defendants were liable for losses allegedly resulting from the
improper use of corporate funds to purchase shares of the company.

CASE FACTSPlaintiff shareholders filed a
derivative suit against defendant corporate directors, alleging that
purchases of company stock with corporate funds were made for the
purpose of ensuring the perpetuation of control by the incumbent
directors. The trial court agreed with plaintiffs' allegations and
found that the directors acted with the improper desire to maintain
control. Defendants appealed.

DISCUSSION

In reversing the lower court, the court
noted that the evidence indicated that the directors' decisions were
based upon direct investigation, receipt of professional advice, and
personal observations of the company attempting a takeover.

Based
upon their information, the board of directors believed, with
justification, that there was a reasonable threat to the
corporation's continued existence.

The question was thus one of
business judgment and furnished no justification for holding the
directors personally liable for losses even though, in hindsight,
their decisions might not have been the best for the business.

CONCLUSION
The matter was reversed and remanded with instructions to enter a
judgment for defendants as defendants met their burden of proof by
establishing that they acted in good faith and after reasonable
investigation.Recommended Supplements for Corporations and Business Associations Law

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